Bullock Gold Mining is evaluating a new gold mine in South Dakota. All of the analysis has been done and the CFO has forecast some of the relevant cash flow information. If BGM opens the mine, it will cost $635 million today (Time 0) and it will have a cash outflow nine years from today (Time 9) of $45 million in costs related to closing the mine and reclaiming the area around. Of the initial costs, BGM will depreciate $500 million over 8 years using straight line method. Expected earnings before taxes for the eight years of operation are shown below. BGM has a required rate of return for all of its gold mines of 12%. Earnings before taxes (in $1,000s): 0 1 2 3 4 5 6 7 8 9 37,857.14 60,714.29 96,428.57 157,857.1 203,571.4 132,142.9 117,857.1 85,000.00 Find the relevant cash flows for each of the relevant periods (Time 0 – Time 9). Calculate the NPV, IRR and Payback Period for the cash flows and indicate whether BGM should pursue the mining project or not. Operating cash flows for Time 1-8 should include: Earnings before taxes Taxes (30%) Net Income Depreciation Free Cash flows
Bullock Gold Mining is evaluating a new gold mine in South Dakota. All of the analysis has been done and the CFO has forecast some of the relevant cash flow information. If BGM opens the mine, it will cost $635 million today (Time 0) and it will have a cash outflow nine years from today (Time 9) of $45 million in costs related to closing the mine and reclaiming the area around. Of the initial costs, BGM will depreciate $500 million over 8 years using straight line method. Expected earnings before taxes for the eight years of operation are shown below. BGM has a required rate of return for all of its gold mines of 12%. Earnings before taxes (in $1,000s): 0 1 2 3 4 5 6 7 8 9 37,857.14 60,714.29 96,428.57 157,857.1 203,571.4 132,142.9 117,857.1 85,000.00 Find the relevant cash flows for each of the relevant periods (Time 0 – Time 9). Calculate the NPV, IRR and Payback Period for the cash flows and indicate whether BGM should pursue the mining project or not. Operating cash flows for Time 1-8 should include: Earnings before taxes Taxes (30%) Net Income Depreciation Free Cash flows
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
- Bullock Gold Mining is evaluating a new gold mine in South Dakota. All of the analysis has been done and the CFO has
forecast some of the relevant cash flow information. If BGM opens the mine, it will cost $635 million today (Time 0) and it will have acash outflow nine years from today (Time 9) of $45 million in costs related to closing the mine and reclaiming the area around. Of the initial costs, BGM willdepreciate $500 million over 8 years using straight line method. Expected earnings before taxes for the eight years of operation are shown below. BGM has a requiredrate of return for all of its gold mines of 12%.
Earnings before taxes (in $1,000s):
|
0 |
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
9 |
|
|
37,857.14 |
60,714.29 |
96,428.57 |
157,857.1 |
203,571.4 |
132,142.9 |
117,857.1 |
85,000.00 |
|
Find the relevant cash flows for each of the relevant periods (Time 0 – Time 9). Calculate the NPV,
Operating cash flows for Time 1-8 should include:
Earnings before taxes
Taxes (30%)
Net Income
Depreciation
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 1 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education